aggregate supply Flashcards
what is aggregate supply
the total planned output of goods and services that firms in an economy are willing and able to supply(produce) at a given price level.
what is in the long run
there is a limit to how much output can be produced
what are the four main points of a long run AD curve
- cannot exceed capacity for a long time
- capacity doesn’t depend on cost/price
- AS is perfectly inelastic as it is independent of price
- vertical LRAS curve
what does LRAS stand for
long run aggregate supply
what is full employment
the level of output where all available factors of production are engaged in the production process (Y FE)
what does full employment represent
it represents maximum capacity
what are inactive resources
when they aren’t involved in the production process (capable but not willing)
where on a PPF is it full employment
any point on the PPF
what will cause a long run aggregate supply shift
if there is a change in the productive potential of an economy due to a change in the quality and/or quantity of a factor of production.
what causes a long run aggregate supply curve to shift left
a decrease in the quantity and/or quality of a factor of production
what causes a long run aggregate supply curve to shift right
an increase in the quantity and/or quality of a factor of production
what are the three quantities of land
- discover new resources
- land reclamation
- extend boundaries
what are the two qualities of land
- irrigation
- flood defences
what are the three quantities of labour
- birth rates
- higher retirement age
- immigration/emigration
what are the two qualities of labour
- education
- training
what is the quantity of capital
- increased investment
what is the quality of capital
- technology advances
what is the quantity of enterprise
- immigration
what is the quality of enterprise
- training and support
what causes shifts in the long run
the quality and quantity of factors of production
what causes shifts in the short run
cost issues
what is the short run
a period of time when one of the factors of production is fixed and the others are variable
what is the short run aggregate supply
a curve that shows the relationship between the average price level and the quantity of output firms wish to produce in the short run
what type of relationship is there between the price level of goods and quantity of goods and services produced (SRAS)
a direct relationship e.g. if the price level increases so does the income and vice versa for a decrease
what causes movements on the SRAS curve
changes in price
what does a rise in prices cause
a movement up and to the right
what does a fall in prices cause
a movement down and to the left
what are the 5 causes of shifts in SRAS curves
- changes in wage rate
- changes in resource costs
- government regulation
- business taxes
- exchange rates
how do changes in wage rate affect the SRAS
they increase the SRAS when wages fall - they decrease SRAS when wages rise
how do changes in resource cost affect the SRAS
a rise in prices causes a decrease in SRAS - a fall in prices causes an increase in SRAS
how does government regulation affect the SRAS
increased regulation means higher costs so SRAS decreases - decreased regulation means lower costs so SRAS increases
how do business taxes affect the SRAS
decreased taxes causes SRAS to increase - increased taxes causes SRAS to decrease
how do exchange rate affect the SRAS
rising means imports are cheaper so SRAS increases - falling means imported resources are more expensive so SRAS decreases
